The inherited Roth 401(k) withdrawal rules give you tax-free access to the money, but they put you on a clock. In most cases you’ll move the balance into an Inherited Roth IRA, then draw it down on a schedule that depends on your relationship to the person who died: a surviving spouse has the broadest set of choices, a non-spouse beneficiary typically has ten years to empty the account, and a small group of Eligible Designated Beneficiaries can stretch withdrawals over their own life expectancy. Miss a required amount and the IRS charges a 25% excise tax on the shortfall.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Move the Money Out of the Employer Plan First
Employer plans are not built to hold accounts indefinitely for people who never worked there, and the plan document itself may require a full payout within a set window. For almost every beneficiary, the first step is a direct trustee-to-trustee transfer of the Roth 401(k) balance into an Inherited Roth IRA. The funds move straight from the plan’s custodian to the new IRA custodian without touching your bank account, which also avoids the mandatory 20% federal withholding that applies when a plan distribution is paid to you.2Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Non-spouse beneficiaries cannot use a 60-day rollover. The direct transfer is the only method available to you. A surviving spouse has more flexibility, but a direct transfer is still the cleanest route.
Titling matters. The new account must show both the deceased owner’s name and your name, and it must be clearly marked as inherited. A format like “John Smith, Deceased, FBO Jane Smith, Inherited Roth IRA” works. If the title doesn’t preserve the deceased owner’s name and the inherited status, the IRS can treat the whole balance as a taxable distribution.
If You’re the Surviving Spouse
You have three possible paths, and the right one depends on your age, your cash needs, and how long you want the money to keep growing tax-free.
Treat It as Your Own Roth IRA
Rolling the inherited Roth 401(k) into your own Roth IRA is the most common choice and usually the most advantageous. Once rolled, the funds are yours rather than inherited. You owe no required minimum distributions during your lifetime, so the balance can compound tax-free for as long as you leave it alone, and you can name your own beneficiaries.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
One wrinkle: the Roth IRA’s five-year clock is separate from the Roth 401(k)’s. If the person who died had a Roth 401(k) for eight years but never opened a Roth IRA, your new Roth IRA starts a fresh five-year period from the year of the rollover. Earnings pulled out before that period runs, and before you’re 59½, can be taxable. Your original contributions always come out tax-free.
Keep It as an Inherited Roth IRA
You can instead stay a beneficiary and open an Inherited Roth IRA in your own name as the surviving spouse. As an Eligible Designated Beneficiary, you can take distributions over your own life expectancy and stretch the account for decades.3Internal Revenue Service. Retirement Topics – Beneficiary This path is useful if you’re under 59½ and want to pull money out without worrying about an early withdrawal penalty, because distributions from inherited accounts are exempt from that penalty.
Under SECURE 2.0 Section 327, a sole-beneficiary surviving spouse can elect to be treated as the deceased employee for RMD calculation purposes. The election is available for calendar years beginning after December 31, 2023, and it can produce better timing if the person who died was younger than you.4U.S. Senate Committee on Health, Education, Labor, and Pensions. SECURE 2.0 Act of 2022 Section by Section Summary
Stay in the Employer Plan
Some plans let a surviving spouse remain in the deceased participant’s plan and treat the account as their own. Most plan documents require separation after the participant’s death, so this option is rare. Ask the plan administrator.
If You’re Not the Spouse: The 10-Year Rule
If you inherited the Roth 401(k) from a parent, sibling, friend, or anyone other than your spouse, the SECURE Act’s 10-year rule almost certainly governs. You must empty the account by December 31 of the tenth year after the year the owner died.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs How you spread withdrawals across the decade is up to you. Pull it all out in year one, wait until year ten, or draw it down in pieces along the way.
Inherited Roth 401(k)s are simpler than inherited traditional 401(k)s on one important point. SECURE 2.0 eliminated lifetime RMDs for Roth 401(k) owners effective January 1, 2024, so the original owner no longer has a “required beginning date.” That means the complicated question of whether the owner died before or after that date, which drives annual RMDs for traditional-account beneficiaries, does not apply. You do not have to take annual distributions during the 10-year window. The year-ten deadline is the only hard date.
Because qualified distributions of both contributions and earnings come out tax-free, the planning question usually isn’t how to minimize tax on withdrawals. It’s how to maximize years of tax-free growth before the account has to be empty. Waiting is often the right move unless you need the cash.
Who Can Still Stretch Over Life Expectancy
A narrow group of non-spouse beneficiaries, called Eligible Designated Beneficiaries, can skip the 10-year rule and take distributions over their own life expectancy:
- A minor child of the deceased owner. Grandchildren, nieces, and nephews don’t qualify. The child uses life expectancy until reaching the age of majority (21 under the federal rule), then a new 10-year clock starts, so the account must be fully distributed by the time the child turns 31.3Internal Revenue Service. Retirement Topics – Beneficiary
- A disabled or chronically ill individual, who can stretch over their full life expectancy.
- A person not more than 10 years younger than the deceased, such as a sibling close in age.
The stretch dies with the person who holds it. When an Eligible Designated Beneficiary dies before the account is empty, the next person to inherit (the successor beneficiary) must finish distributing the balance within 10 years of the EDB’s death.
The Five-Year Rule and When Earnings Can Be Taxable
Tax-free treatment of earnings requires a qualified distribution, which has two conditions. The first, a triggering event, is automatically met by the owner’s death. For a designated Roth 401(k), the qualifying events are age 59½, death, or disability. The first-time home purchase exception that applies to Roth IRAs does not apply to Roth 401(k)s.5Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
The second condition is that the Roth account must have been open for at least five full tax years. The clock runs from January 1 of the year the original owner made their first contribution to the designated Roth account in the plan, and you inherit whatever time has already elapsed.6Internal Revenue Service. Retirement Topics – Designated Roth Account
If you take a distribution before the five-year period is satisfied, only the earnings portion is taxable. Your after-tax contributions always come out tax-free. The 10% early withdrawal penalty does not apply, because distributions on account of death are exempt regardless of your age.7Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Watch the clock when you roll the Roth 401(k) into an inherited Roth IRA. The Roth IRA has its own five-year period, which runs from the year the original owner first contributed to any Roth IRA, not from the Roth 401(k). If the person who died never had a Roth IRA, the new inherited Roth IRA starts a fresh five-year clock from the year of the rollover. Many beneficiaries inheriting well-established Roth 401(k)s won’t be affected, but check both clocks before taking money out.
If You Inherited From Someone Who Also Inherited
When a beneficiary dies before the account is empty, what the next person (the successor) has to do depends on which rule the first beneficiary was under.
If the first beneficiary was on the 10-year rule, the successor steps into that same deadline. No fresh decade. If the original owner died in 2024 and the first beneficiary died in 2028, the successor still has to empty the account by December 31, 2034.
If the first beneficiary was an Eligible Designated Beneficiary stretching over life expectancy, the successor gets a new 10-year window from the year the EDB died. Either way, no one after the first EDB can keep stretching.
Trusts, Estates, and Charities
If the beneficiary isn’t a person, the rules shift. A trust can qualify as a “see-through” trust and be treated as if its individual beneficiaries inherited directly, but it must be valid under state law, irrevocable (or become so at death), and have identifiable beneficiaries. Documentation has to reach the plan administrator by October 31 of the year following the year of death.8Internal Revenue Service. Internal Revenue Bulletin 2024-33 If the trust fails those tests, or if the estate or a charity was named outright, the SECURE Act’s 10-year rule does not apply. The older rules take over: because Roth 401(k) owners no longer have a required beginning date, most new inheritances in this category will fall under the five-year distribution rule.3Internal Revenue Service. Retirement Topics – Beneficiary
If You Miss a Deadline
A missed required distribution, whether an annual amount under the life-expectancy method or the full year-ten payout, triggers a 25% excise tax on the shortfall.1Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Catch it and withdraw the missed amount within two years and the penalty drops to 10%.
You can also ask the IRS to waive the penalty. File Form 5329 with a written statement explaining what happened. Reasons the IRS has accepted include serious illness, a death in the family, and errors by the financial institution. Enter “RC” (reasonable cause) on the appropriate line to request the waiver, and the IRS will tell you if it’s denied.9Internal Revenue Service. Instructions for Form 5329
Set calendar reminders for the year-ten deadline and any annual amounts. Most custodians will track the schedule and send reminders, but the legal responsibility is yours.